UPDATE: IBM Pick Of Cloud Startup Shows More Rivals For Oracle

Date : 04/30/2012 @ 2:24PM
Source : Dow Jones News
Stock : Microsoft Corp. (MSFT)
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UPDATE: IBM Pick Of Cloud Startup Shows More Rivals For Oracle

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Much has been made of the rivalry between Oracle Corp. (ORCL) and Salesforce.com Inc. (CRM) in cloud computing, but last week a venture-backed company from San Francisco stepped from the shadows to snap up one of the richest contracts in business for software to manage sales, marketing and customer relationships.

International Business Machines Corp. (IBM) disclosed it will replace its Oracle/Siebel customer relationship management software with products made by SugarCRM, an 8-year-old company backed by Draper Fisher Jurvetson and two other venture funds.

The contract demonstrates how quickly a relative startup can establish credibility in the fast-moving market to provide Web-based software, frequently referred to as the cloud. The contract, which IBM was shopping as far back as two years ago, also shows how rivalries between technology giants can impact business relationships.

"IBM was the world's largest deployment of Siebel applications, and we view this replacement as yet another indication of the pressure on Oracle's application business," said Pat Walravens of JMP Securities.

To be sure, this one contract is just a small part of Siebel's business, and other significant clients--such as General Electric Co. (GE) and Nordstrom Inc. (JWN)--remain stalwarts, by all reports. Nonetheless, the deal marks the second major corporation to replace its Siebel platform in the past 12 months. In the fall, Hewlett-Packard Co. (HPQ) selected Salesforce.com to replace Siebel.

Combined, the decisions are "momentous," said analyst Mark Murphy of Piper Jaffray, "because IBM and H-P were two of the largest Siebel deployments to our knowledge."

It's not surprising that IBM and H-P, two of Oracle's biggest competitors, would want to replace Siebel installations they put in place before Oracle bought Siebel for $5.8 billion in 2005.

Oracle declined to comment for this story. IBM declined to comment about vendor relationships. A spokesman for Salesforce.com said the company didn't compete for the IBM business.

For SugarCRM, the IBM deal gives the company more legitimacy and shows its ability to secure key contracts against larger foes. SugarCRM is building a business aimed at delivering management services around a core of open-source software that clients can deploy in a private or public cloud.

"The open-source structure is highly disruptive," said Nick Halsey, chief marketing officer and head of corporate development for SugarCRM.

The company distributes its software through about 400 resellers world-wide. Since the software code is open source, potential customers easily can test the product and customize it at will after acquisition. SugarCRM earns revenue from offering five levels of service, each built around the same core software.

Halsey declined to confirm or deny whether IBM was replacing its Siebel installation with SugarCRM. He did say recent "buzz" about the company was "because several of our customers have opened their kimono about what they are doing with our products."

A lot of cloud business is on the move. Already about 40% of the $10 billion customer relationship management software business has moved online, which allows companies to better organize and distribute the content. As a result, software companies are scrambling to both buy and build cloud offerings of their own.

Oracle is purchasing Taleo Corp. (TLEO) to acquire the smaller company's cloud-based HR management tools and Oracle bought RightNow for its customer's service suite. Both will become components of a cloud service Oracle intends to launch late this year. SAP AG (SAP) has acquired cloud-based HR software company SuccessFactors. Microsoft Corp. (MSFT) delivers its DynamicsCRM software online and recently announced it will begin delivering its enterprise resource planning software as a cloud service as well.

--By Steven D. Jones, Dow Jones Newswires, 360-834-1865, steve-d.jones@dowjones.com.

--Shara Tibken contributed to this article.

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